Mutual Funds Test

LIQUID FUNDS:

Liquid Funds, as the name suggests, invest predominantly in highly liquid money market instruments and debt securities of very short tenure and hence provide high liquidity. They invest in very short-term instruments such as Treasury Bills (T-bills), Commercial Paper (CP), Certificates Of Deposit (CD) and Collateralized Lending & Borrowing Obligations (CBLO) that have residual maturities of up to 91 days to generate optimal returns while maintaining safety and high liquidity. Redemption payment is typically made within one working day of placing the redemption request. This category is predominantly used by corporate and individual investors alike to park thier money, thereby earning a higher return than either current or savings bank accounts. As Liquid Funds typically do not charge any exit loads, many equity investors also use liquid funds to stagger their investments into equity mutual funds using the Systematic Transfer Plan (STP), as they believe this method could yield higher returns.

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DEBT FUNDS:

A debt fund is a mutual fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation. Debt funds are also referred to as Income Funds or Bond Funds.

Debt funds are ideal for investors who to avoid the market fluctuations of equity stock market, want regular income, but are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds. If you have been saving in traditional fixed income products like Term Deposits, and looking for steady returns with low volatility, debt mutual funds could be a better option, as they help you achieve your financial goals in a more tax efficient manner and therefore earn better returns.

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BALANCED FUNDS:

A balanced fund combines equity stock component, a bond component and sometimes a money market component in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate, or higher equity, component, or conservative, or higher fixed-income, component orientation.

These funds invest in a mix of equities and debt, giving the investor the best of both worlds. Balanced funds gain from a healthy dose of equities but the debt portion fortifies them against any downturn.

Balanced funds are suitable for a medium-term horizon and are ideal for investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts this type of mutual fund invests into each asset class usually must remain within a set minimum and maximum.

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EQUITY FUNDS:

An equity fund is a mutual fund scheme that invests predominantly in equity stocks. In the Indian context, as per current SEBI Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65% of the scheme’s assets in equities and equity related instruments.

In many ways, equity funds are ideal investment vehicles for investors that are not as well-versed in financial investing or do not possess a large amount of capital with which to invest.

The attributes that make equity funds most suitable most individual investors are the reduction of risk resulting from a fund's portfolio diversification and the relatively small amount of capital required to acquire shares of an equity fund. A large amount of investment capital would be required for an individual investor to achieve a similar degree of risk reduction through diversification of a portfolio of direct stock holdings. Pooling small investors' capital allows an equity fund to diversify effectively without burdening each investor with large capital requirements.

Equity funds are managed by experienced professional portfolio managers, and their past performance is a matter of public record. Transparency and reporting requirements for equity funds are heavily regulated by the federal government.

Investing in equity mutual funds comes at slightly higher risk as compared to debt mutual funds, but they also give your money a chance to earn higher returns.

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GOLD FUNDS:

Gold funds are open-ended fund of fund scheme investing in units of Gold Exchange Traded Fund. It is ideal for Investors looking to diversify from other asset classes. It saves the investor the trouble of physical gold holding as it is held as other units of mutual funds. These funds are used to hedge against the volatility in the equity and debt market space, thus providing downside protection to an investor’s portfolio.

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80C – ELSS FUNDS:

Investments of up to Rs. 1,50,000 made in ELSS funds are treated as a standard deduction from GTI u/s 80C of the Income tax Act. There are various investment products that individuals can avail, u/s 80C of Income tax Act to claim this standard deduction like Public Provident Fund, National Savings Certificate, etc. Among these Equity Linked Savings Schemes (ELSS) funds have gained prominence in the recent years. When compared to these traditional tax savings instruments, an Equity Linked Savings Scheme is more opportunistic for individuals, as it provides a shorter lock-in period of three years and potential for higher returns.

This fund has a lock-in period of 3 years, which gives the fund manager the flexibility to make strategic, long-term investments in a diversified portfolio. It comprises of a mix of large and medium sized stock, carefully chosen after intensive fundamental analysis and research, having potential of long-term capital appreciation and growth. Investments made in ELSS are however subject to the volatility of the stock markets.

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